Topic: The implications of the United States' "unsustainable debt trajectory" (Read 3430 times)

Yes, it was, because it was in the opinion of some of the founding fathers that it should be illegal for the federal government to issue credit-based money. That is why the three post-constitution central banks of the United States were all set up as "private banks". The federal government has the right to coin money, but the right to issue credit money was actually intentionally scrapped from the constitution. This information is historically available.


Hardly. It was within a couple of years of the constitution's ratification that the first bank was born.


Credit money is created in banks. Base money is created by the federal reserve. Without an increase in base money, credit money cannot expand, therefore the federal reserve has ultimate control over how much the money supply can expand--ergo it ultimately is in charge of issuing money. Since congress is in charge of determining whether or not the federal reserve is performing its capacity at an acceptable level and has the ability to dissolve it in favor of a new system, congress is ultimately in charge of the monetary system.


In other words, politicians are corrupt, yada yada yada here's a currency that is primarily issued by the wealthy, join up, we're less corrupt I promise

When the Federal Reserve was setup 100 years ago, there were many examples of public utilities being run by private interests in the name of the "public good". The Federal Reserve is setup much like a public utility run by private interests. It was designed that way deliberately. It's an independent agency within the government, well outside of the original scope of American government.

American currency is private scrip, issued by private corporations. In contrast to how Bitcoins are generated, let's see how the Federal Reserve explained the creation of American money in the 1970's:


Money is primarily created "in banks". Banks issue our money. IOW, neither America nor its currency is sovereign. Both are beholden to private interests first.

Bitcoin: it came along just in time.

I think you mean odolvlobo has the post that most closely agrees with the agenda you want to promote in this thread--that being stupid shit like risk of US default. The US is a sovereign nation with a sovereign currency and cannot default unless it fricken damn well wants to. Otherwise there is absolutely no chance. The crap about the debt ceiling is just the latest political toy that you obviously let the media spoon-feed to you, and with relish, without critically thinking about any of it. Stop being the exact reason why we have such a shitty system in the first place.

Whether the Fed controls the government or vise versa is not within the intended scope of my post. This question will never be answered here because it isn't even well defined. Please ignore it!

The question is whether I am correct in my observation that the future holds either A, B, or C (or a combination thereof). And then further, what are the signs that things are starting to crack. Currently I am watching for
1) Rising interest rates and dropping bond prices especially when (if!) the Fed ever stops QE4
2) Failed treasury auction

Currently odolvlobo has the most logical and reasonable post.

Hence why it's difficult to have practical discussions with ideologues.

 
I guess that's where the analogy gets complicated

God, I used to love ninja turtles... Now, the real question is... Are they teenagers in turtle or human years?

Re: The Fed; it is pointless to argue whether the Fed controls the government or the government controls the Fed; it is a matter of perspective.

Congress passes a budget with a severe deficit, but congress doesn't want to raise the debt ceiling and tend to drag their feet quite a bit, even risking credit downgrades and such. The Fed's hands are tied, so they print money. You can either spend less, raise the debt ceiling, or print money. Note that I am not in any way supporting or condoning the Fed's or congress's actions.

Now as for "what they are"
I hear people say "Lol they are a Private Institution!"
And then "Lol no they are totally Controlled By The Government!"
"You are wrong, bro"
"No, YOU are wrong!"

How about "They are a private institution given monopoly powers by the federal government."
You can't just say "they are a private institution" and leave it at that. It's like calling a private prison a private prison and leaving out the convenient socialist fact that 90% capacity is contractually guaranteed by the state. When the state uses its magical statey powers to give a "private institution" powers that, say, help eliminate its competition, you're really not being accurate if you call it a private institution. On the other hand, if an institution (like the Fed or private prisons) is privately owned but is given "special mutant powers" by the government, you can't really say "it's a government institution" because it's not, t e c h n i c a l l y.

SOOO that is why we have the prefix "quasi." I prefer to call the Fed a quasi-private institution just as Bitcoin is a quasi-commodity (has some features of fiat and some of commodity) and private prisons, at least in the way they are usually implemented in the U.S. of FUDmerica, are quasi-private. I would prefer to use the word socialism, but socialists get all upset that I call it what it is. Hey if it steps like a goose, and gives magic quacks to 'private' institutions, it's not a free-market-capitalist-destroying-the-world-with-evil-CEOs-and-profits-at-all-costs duck.

Calling the Fed a private institution is like calling a teenage mutant ninja turtle a regular old human boy.
Calling it a government institution is like calling a ninja turtle a common snapping turtle. For reference:

Totally agreed, C is happening and it won't create inflation since the money has already been spent, new money just improved the account outlook. But unless they write off some of that government debt (through which way?), the system is still in danger because of higher and higher interest

And there are still problems from outside that can not be identified easily, a large part of the US debt is owned by foreigners

I'm amazed that more people don't understand this simple fact.

Sounds right although the timing of it is what everyone wants to know. They somehow manage to kick the can down the road and maybe can do so for a few more years. Maybe they are hoping for some external excuse ( like an alien invasion..  or WW3  ).

I expect the USA to follow the same trajectory USSR. At some point the unfunded liabilities will make the continuance of the political system untenable so they will shed those obligations by dissolving it.

A "new" government will be formed to take its place, and to the surprise of no one the same assholes will still be in charge just under a different name. It will probably be less totalitarian though in the same way that Russia is less totalitarian than the USSR because it's more profitable for the rulers that way.

http://www.usdebtclock.org/

My personal point of view as European citizen:

For A: Europe is trying at the moment a kind of similar policy. Almost all countries raise their taxes doe to reduce their government debt. Will it work? We will see. At the moment Ireland is recovering from a couple of years of austerity and Irish credit rating has been upgraded a couple of days ago….

For B: default? Do you mean US defaulting just like Argentina? For me as European would be the end of the world as I know it…Don’t believe it.

For C: well US doesn’t look like being afraid of inflation. At least not in the same way some european countries would be….so probably the dollar press will be used.

Regards, Inge

Abolishing the fed would not be a default. Read more on how the fed interacts with the treasury--the government can not default to the fed. The debt owned by the fed is just a matter of account, it is of no actual consequence. This information tends to get lost in the sensationalization of the federal reserve system.

Of course. Congress can also choose to become honest and not corrupt anytime they want as well.

/s

No, it does not. That is a laughable presumption; congress can abolish the fed whenever it so chooses.

My speculation is that the result will be B and C, but neither will be intentional. The problem is that both inflation and rising interest rates are inevitable. The rise in rates will cause the value of the Fed's assets to plummet, and it won't be able to reduce the money supply and reduce inflation. Furthermore, even if inflation reduces the debt burden, rising interest rates will require new debt at rates that the U.S. won't be able pay. So, my prediction is inflation followed by default.

Please It does exactly what the federal government needs it to do--it most certainly will not allow for a default. The general policy decisions may be up to vote, but do not mistake this for being independent of the federal government. It is not and was never intended to be.

You have a big misunderstanding of how the US monetary system works.

Option B won't happen because the Fed isn't some independently operated private bank, it is a private bank run by the federal government. A stupid distinction from a public central bank, but a necessary one due to the constitution. Option C is what already happens on a regular basis.

Politicians do not need to do diddly squat about addressing the national debt. The more they spend the more resources of the economy are diverted towards the government's interest. Whether or not people are willing to put up with what the government thinks is the best way to shape society is a political problem, not a monetary one.

You can be sure that the government and the fed will do what it takes to keep the money system running smoothly--so this sky is falling shit is getting silly. The CNN article you linked aptly points out that all this is is a PR problem, there is no danger of anything relevant happening.

It's not a ponzi scheme, it's a monetary scheme, but thanks for reminding us about Pirate because that would have been obscure otherwise.